Explain how prices in a competitive market form --- and how they take the place of almost limitless information that a social planner would need if he tried to mimic the market outcome.

According to this Application, the recession in 1981 was caused by

A) the government cutting back on aggregate demand to reduce inflation. B) increasing oil prices which resulted in a decrease in aggregate supply. C) massive immigration from Europe to the United States. D) an decrease in aggregate supply resulting from U.S. bank collapses.

If business losses are the result of uncertainty in the real world, then

A) business profits are too. B) profits must equal losses in the short run. C) profits must equal losses in the long run. D) losses could be eliminated if we could eliminate uncertainty in the real world, but profits will still remain.